To upgrade your library go to the iTunes Store. On the right side you'll see iTunes Plus (x). Go there and you can upgrade.
I'm not terribly excited about paying again for the same music, but I hate DRM enough to make this 1-time upgrade.
It looks like we might be in the middle of a pricing war between Amazon and iTunes:
iTunes: $.99 + DRM
Amazon: $.89 + No DRM
iTunes: $.69 + No DRM
Anyone care to guess how low online music will go?